Proposed EU VAT changes in relation to the Mini One Stop Shop (MOSS) system

The EC has announced a Proposal for a Council Directive amending Directive 2006/112/EC and Directive 2009/132/EC regarding certain value added tax obligations for supplies of services and distance sales of goods.

The Proposal aims to overcome the barriers to cross-border e-commerce arising from onerous VAT obligations on the smaller operators in the digital economy whilst at the same time limiting the lack of neutrality caused by the exemption from import VAT on low value goods. The general objectives of the Proposal are the smooth functioning of the internal market, the competitiveness of EU business and the need to ensure effective taxation of the digital economy, all within the continuous shift to the destination principle for VAT.

Overview of the main provisions in the proposal

The extension of the existing MOSS to intra-community distance sales of tangible goods and services other than electronic services as well as to distance sales of goods from third countries;

The Proposal aims to extend, with effect from 1 January 2021, the application of the current special schemes (MOSS) for the taxation of ‘electronic services’ to other services as well as to distance sales of goods, both intra-community and from outside the community.

The introduction of a simplified arrangement for global declaration and payment of import VAT for importers of goods destined for the final consumer where VAT has not been paid through the MOSS system;

A new section is added to the VAT Directive creating a special scheme for distance sales of goods imported from third countries (outside of the EU). The definition of ‘distance sales of goods imported from third countries’ lays down the scope of this special scheme, which covers sales of goods in consignments of an intrinsic value not exceeding €150. The place of supply of such distance sales, where the goods sold ‘on distance’ are imported into a Member State other than the Member State in which the transport to the customer ends, is deemed to take place in the latter Member State.

When VAT is declared under this special scheme, VAT should no longer be payable upon importation of the goods. It is therefore necessary to provide for an exemption for such imports. To allow customs to identify these consignments upon importation, a valid VAT identification number proving that VAT is declared under the special scheme should be provided to customs (at the latest upon lodging of the import declaration)

Moreover, simplification measures are introduced for goods in consignments of a value for which VAT is not accounted for via the import scheme. For such imports, Member States should allow the person presenting the goods to customs in the Community (typically the postal operators or express couriers) to report and pay import VAT due on these consignments electronically on the basis of a monthly declaration, on behalf of the person for whom the goods are destined for. To further simplify the declaration, these goods should systematically be subjected to the standard VAT rate, unless the person for whom the goods are destined, specifically requests the application of a reduced rate. In this case however, a standard customs declaration would be required.

The removal of the existing intra-Community distance sales thresholds which are a cause of distortions in the single market;

Since suppliers making intra-Community distance sales of goods will have the possibility to use the MOSS and declare and pay VAT on all their distance sales in a single Member State, the proposal removes the current thresholds (in the case of Malta €35,000 annually) laid down in Article 34 of the VAT Directive, below which distance sales remain subject to VAT in the Member State where the transport begins.

These thresholds are replaced by a threshold of €10,000 for micro-businesses below which the place of the supplies covered by this special scheme remains in the Member State where the supplier is established. This threshold should apply as of 1 January 2018, for supplies of electronic services only. As of 2021, this threshold should become a global threshold applying to electronic services and intra-Community distance sales of goods.

Moreover, the proposal clarifies that the place of supply is deemed to be where the non-taxable customer is established also where the online sales of goods are made through an intermediary or a third party who is acting in his own name but on behalf of another person and who is using an electronic interface to carry out the supply (e.g. An electronic platform).

The removal of the existing VAT exemption for the importation of small consignments from suppliers in third countries which disadvantages EU sellers;

Directive 2009/132/EC provides for an exemption on import VAT for imported goods of negligible value not exceeding a total value of €10 up to €22 (amount to be decided by each Member State). As the use of the special scheme will allow for VAT to be declared and paid on imported goods ordered online and thus will drastically simplify VAT collection, there is no need to maintain this VAT exemption. The proposal therefore removes this exemption as from 1 January 2021, which is the proposed date of entry into force of the import scheme.

The introduction of a common Community-wide simplification measure including a VAT threshold for intra-Community distance sales of goods and electronic services to help small start-up e-commerce businesses as well as simplified rules for the identification of customers.

Article 58 of the VAT Directive will be amended to introduce a threshold of €10,000 below which the place of supply of services that may be covered by the intra-Community special scheme for electronic services remains in the Member State of the supplier. This should however be optional for taxable persons so as to allow them to use the MOSS anyhow, e.g. if during a calendar year their turnover is exceptionally below the threshold or if such taxable person is established in a high VAT rate EU Member State and its main markets are in low VAT rate Member States. The proposal also increases (with effect from 2021) the deadline for the MOSS return submissions from the current 20 days to 30 days. Moreover corrections to previous VAT returns can be made in a subsequent return instead of in the returns of the tax periods to which the corrections relate.

Taxable persons not established in the Community but having a VAT registration in a Member State (e.g. Because they carry out occasional transactions subject to VAT in that Member State) will be permitted to use the non-Union MOSS with effect from 2018.

Allowing for EU sellers to apply home country rules in areas such as invoicing and record keeping; and

The VAT Directive is amended to provide that the invoicing rules of the Member State of identification should apply for supplies covered by the MOSS. As a consequence, suppliers should respect the invoicing rules of a single Member State instead of, as is the case today, each Member State of destination to which supplies are made.

Greater coordination between Member States when auditing cross-border businesses who use the VAT system to ensure high compliance rates

Although this is stated as a main objective of the Proposal, the actual text of the Proposal does not go into great detail as to the merits of how this is to be achieved.

The Proposal constitutes a further step towards the destination principle, especially through the extension of the MOSS system to distance sales, the quasi removal of the distance sales threshold and the elimination of the import VAT exemption on small consignments.

Josef Mercieca is a Senior Tax Manager at BDO Malta. Josef holds a first degree in Accounting. Josef is a member of the Malta Institute of Accountants (MIA) and the Malta Institute of Management (MIM) and has delivered presentations and training on topics relating to VAT, tax and corporate restructuring. He is an ACCA lecturer for Advanced Taxation (P6) course.